The Second Life Terms of Service's mandatory arbitration provision was unenforceable and interaction with a person in a virtual world can satisfy a state's "minimum contacts" requirement for personal jurisdiction.

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In 2006, Pennsylvania lawyer Marc Bragg (“Marc Woebegone” in Second Life) brought a lawsuit against Second Life developer Linden Lab when his account was unilaterally disabled by Second Life administrators... Linden Lab claimed that Marc Bragg had violated their Terms of Service by URL-hacking[1] the Second Life virtual land auction website in order to gain access to otherwise unavailable auctions. As a result, Bragg was able to purchase virtual land within Second Life valued at $1,000 for approximately $300.[2] Bragg’s account was suspended while Linden Lab conducted an investigation, and later closed completely.[2] Bragg argued that by closing his account, Linden Lab also dissolved his virtual assets, which he valued at between US$4,000 and US$6,000.[2]

On May 1, 2006, Bragg initially filed his suit in the West Chester District Court in Pennsylvania.[3] After retaining private counsel, Jason A. Archinaco, Bragg refiled on October 4, 2006. His new complaint named Philip Rosedale, the creator of Second Life, as an independent defendant.[4]

On November 7, 2006, Linden Lab responded with three filings: they sought to remove the case to federal court,[5] they sought to dismiss claims against Philip Rosedale due to a lack of personal jurisdiction,[6] and they sought to compel[7] Bragg to participate in the mandatory arbitration outlined in the Second Life Terms of Service.[8]

Bragg opposed the removal and sought to remand the case back to state court.[9] Linden Lab opposed the motion[10] and was successful.

"The parties agree that there were unfortunate disagreements and miscommunications regarding the conduct and behavior by both sides and are pleased to report that Mr. Bragg's "Marc Woebegone" account, privileges and responsibilities to the Second Life community have been restored."[13]

Bragg sought to prevent Linden Lab from enforcing its mandatory arbitration provision. He argued that the provision was "both procedurally and substantively unconscionable and is itself evidence of defendants' scheme to deprive Plaintiff (and others) of both their money and their day in court."[11]

Judge Robreno agreed and held that the Terms of Service was a contract of adhesion, noting that the Terms of Service was presented by Linden Lab on a "take-it-or-leave-it-basis."[11] However, he limited this holding by noting that a claim that a contract is one of adhesion can be defeated if there are "'reasonably available market alternatives'" available to the weaker party.[11][14] Although there were numerous other online virtual worlds available to Bragg at the time, Judge Robreno noted that Second Life was unique in that it allowed participants to retain property rights in virtual land.[11]

Although some commentators have posited that the court's decision regarding the mandatory arbitration provision will be the seminal decision on the issue for some time,[15] it is unlikely that the decision will have much weight as more virtual worlds (that allow ownership of virtual land) begin to compete with Second Life.

As mentioned above, Philip Rosedale filed a motion to remove himself from the case based on a lack of personal jurisdiction. Although much of Judge Robreno's discussion of minimum contacts is fairly boilerplate, his analysis includes a unique twist when he recognizes that Rosedale's avatar may have actually interacted with Bragg's avatar within the virtual world:

Once inside Second Life, participants could view virtual property, read additional materials about purchasing virtual property, interact with other avatars who owned virtual property, and, ultimately, purchase virtual property themselves. Significantly, participants could even interact with Rosedale's avatar on Second Life during town hall meetings that he held on the topic of virtual property.[11]